Hypothecated tax

The hypothecation of a tax (also known as the ring fencing or ear marking of a tax) is the dedication of the revenue from a specific tax for a particular expenditure purpose.[1]Hypothecation is the pledging of assets.

A 2012 report by the Mercatus Center found that dedicating tax revenues to specific expenditures can be used by policymakers to mask increases in total government spending, and showed empirically that hypothecated taxes tend to result in an increase in total government size but have little effect on the expenditures to which they are tied.[3]

Various Chinese imperial armed forces including the Beiyang Army were assigned the customs revenues of their region.

A hypothecated tax on tobacco products was used to fund VicHealth, a Victorian government body responsible for promoting good health, from 1987 to 1997. Since then, various other governments around the world have introduced similar hypothecated taxes on tobacco products.[4]